Groups to Federal Agency: Stop Financing, Approving New Coal Plants

Financial woes of Sunflower Electric prime example of risks

August 3, 2009

Washington, DC —

As Sunflower Electric aggressively pushes for expansion of a coal-fired power plant at Holcomb, Kansas, the Sierra Club, represented by Earthjustice, filed court papers last Friday seeking to stop the expansion project. The challenge is to the federal Rural Utilities Service (RUS), which has effective oversight over Sunflower's business decisions, including the expansion.

Already burdened with tens of billions in unpaid loans, the RUS is now allowing utilities, like Sunflower Electric, to take on billions of dollars in additional debt to build new coal-fired power plants, at enormous financial risk to taxpayers. Electric cooperatives supported by the RUS are involved in other coal plants across the country.

An extensive review of financial documents reveals a long and troubled financial relationship between Sunflower and RUS. The result is that Sunflower has essentially been forced to accept strict oversight and control by the owner of its loans; the federal government.

In the early 1980s, RUS, a little known arm of the Department of Agriculture, committed $543 million in loans and guarantees so Sunflower could build its existing 360-MW coal-fired power plant. Soon after the construction of Holcomb 1, Sunflower experienced severe financial difficulties and defaulted on its debt service payments, due largely to having built a bigger plant than there was a market for. In 1987 RUS and Sunflower entered into an agreement to restructure Sunflower's debts. Even with the restructuring, Sunflower could not meet its debt service obligations and Sunflower's balance of debt ballooned. RUS and Sunflower entered into another debt restructuring agreement in 2002. RUS conditioned the refinancing on Sunflower handing over significant authority and control of its business operations to RUS. Under the governing loan documents, Sunflower had to obtain RUS approval for any significant project or decision, which led to considerable friction.

"It makes no sense for the Rural Utilities Service to giving its stamp of approval to new coal plants across the country, especially in these tough economic times. Our tax money should be going into energy options that can provide a good return on investment -- options like wind, solar and energy efficiency, not high-risk, dirty coal plants," said Bruce Nilles, Director of the Sierra Club's Beyond Coal Campaign.

"Federal agencies with significant interest in projects are by law required to evaluate the environmental impacts of such projects. Sunflower has been financially propped up by the US taxpayer for decades and those taxpayers deserve to know if the project is sound, or a boondoggle that hurts the environment and the health of Kansans," said Jan Hasselman of Earthjustice who is representing the Sierra Club in the legal action taken on Friday, July 31.

The lawsuit argues that RUS must conduct an environmental impact statement (EIS) evaluating the impacts of -- and alternatives to --Sunflower's expansion before authorizing the project to proceed and before signing off on Sunflower taking on any more debt. Environmental impacts play an integral role in a utility's ability to repay its loans, a fact recognized by the nation's largest banks, which already consider the cost of carbon dioxide pollution before granting loans. Other parts of the federal government, including the House Oversight and Government Reform Committee have also warned that failing to consider the costs of future carbon regulations will place taxpayer dollars and ratepayers at risk.

There is no dispute that RUS failed to do an EIS before authorizing Sunflower to take on even more debt, which is especially disturbing because of the vast amounts of global warming gases and other harmful pollutants the project would emit.

The project's air permit, rejected by Kansas Department of Health and Environment in October 2007 because of the impact the plant's global warming emissions would have on public health, has become a poster child for the coal-fired power plant industry and a cause célèbre for certain politicians in the Kansas legislature. Former Governor Kathleen Sebelius repeatedly vetoed legislation seeking to force this project on the citizens of Kansas, but the new Governor recently inked a deal that seeks to allow the project to go forward.

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